Types of borrowing

• What are the 6 types of borrowing?

  • Personal loans
  • Credit cards
  • Mortgages
  • Hire purchase
  • Overdraft
  • Payday loans
• What is an overdraft?

  Short-term loan used if short of cash - arranged with bank when balance on current account reaches zero.
• Advantages and disadvantages of overdraft

  Adv - Usually free to set up

  - Only pay interest on money borrowed

  Disadv - Interest is high

  - Penalty charges for overspending
• What is a hire purchase?

  Pay deposit, then pay monthly instalments for 1-5 years - once paid you own it.
• Advantages and disadvantages of hire purchase

  Adv - Allows to buy expensive item if cant afford

  - Spaced out regular payments

  Disadv - Item can be repossessed if you fall behind on payments
• What is a pay day loan?

  Short term loan usually for small amounts - received on the same day.
• Advantages and disadvantages of pay day loans

  Adv - Can help with cash flow problems

  - Good for quick money

  Disadv - Very expensive

  - Fee is charged
• Advantages and disadvantages of mortgages

  Adv - Spread out costs over a long period

  - Fixed/tracked rates

  Disadv - Increase in interest rates may affect ability to pay

  - Property can be repossessed if payments aren't made
• What is a personal loan?

  Used to buy expensive items - borrow a fixed amount and pay back in instalments for 1-5 years.
• Advantages and disadvantages of personal loan

  Adv - Monthly instalments - plan expenditure

  - Flexible repayment terms

  Disadv - May be arrangement fees

  - May lose the asset the loan is secured against